Providence, Saint John sale hearing: Key takeaways

Kansas Attorney General Derek Schmidt held a public hearing Wednesday to discuss the sale of Providence Medical Center in Kansas City, Kan. and Saint John Hospital in Leavenworth, Kan., to Prime Healthcare Services.

The hospitals are both non-profits and — if the sale is approved — would be converted to for-profit entities. The hospitals hold more than $170 million in debt, and owners say they only way to keep them open is to sell.

Schmidt said he would follow the same review process used during the sale of several Health Midwest hospitals to HCA Midwest Health System.

Things he plans to look at include: Making sure the sale is necessary, no board member will gain or benefit from the sale, insure the purchaser is paying fair market value for the hospitals, and review how sale proceeds will be managed and distributed.

“Another area of inquiry involves enforcement of charity commitments after the transaction would close,” Schmidt said. “Section 7.10 of the asset purchase agreement requires Prime Healthcare to adopt and maintain the same charity commitments to the medically indigent. However, I notice there is no enforcement provision in this section of the agreement by anyone, and would like for the parties to explain how this can be enforced going forward…”

Providence and Saint John sees more than 80,000 patients a year and employs 500 active physicians and 861 full-time associates.

During the last ten years, SCLHS has invested $93 million in capital improvements, $200 million in charity care and $200 million in bad debt expenses in the two hospitals.

Operating losses reached $78 million and bond indebtedness reached more than $100 million during the last ten years, he said.

“Given these realities, it’s determined the ongoing contribution is unsustainable and is threatening the other ministries of SCL health system, which led to our decision to look for a partner or a buyer,” he said.

The search for a buyer or partner initially included 45 organizations — 15 of which were nonprofits — but only three submitted bids. Prime was the only one willing to commit to maintaining acute care and emergency department facilities for five years, as well as maintain charity care, he said.

Arnie Kimmell, senior vice president of development for Prime, on the company’s history of purchasing struggling hospitals:

“It started with (CEO Dr. Prem Reddy’s) acquisition ofa distressed hospital. The company has grown to the point where in 2010 it had grown to 14 hospitals acquired one and two at a time, all of them distressed. Four, in fact, were in bankruptcy when (they were) acquired, and the other ten were distressed. All 14 are profitable and all 14 score very well on quality metrics.”

“At the beginning of my shift in the morning I know what my goals are for that day because I’ve worked them out with my patients and their families. That will never change. The kind of nurse that I am, that will never change…

It looks like our owners will be different now and that they will belong to an organization that is new to our area. I have heard everything that has been said, and I choose to see what lies ahead not as challenges but as opportunity to make Providence Medical Center the best. And I still want to do my job within this new framework, and I want us in Wyandotte County to have a good hospital. This has to happen, and I know that we can do that.”

“This is being forced down our throats and it’s not right. A critical safety net hospital like Providence should never be sold to a health system under federal investigation for alleged Medicare fraud unless there are absolutely no better options. But we don’t know what those choices are because it has all been done behind closed doors.

We need an open public process to find out if there are any better options… Our community has too much at stake. Please put a hold on this deal and require SCL to sell our hospitals in a transparent, public process.”

Brenda Sharpe, CEO of REACH Health Care Foundation on her experience with the sale of a non-profit hospital to a for-profit company…

“I am not here to speak in favor or opposition to this transaction. I think I’m here to encourage the partners and all parties involved to be as transparent as possible in disclosing the terms of the agreement…

Our experience as a board of directors has been that there are many winners and losers in these kinds of transactions. The clear winners are, frankly, the lawyers who are benefiting from decades of litigation surrounding these kinds of conversions…

I just urge you… to spend some time looking at the terms of this and the parties that are here to make sure everybody is crystal clear on what all of those words mean in the document, that there is nothing left 10 years later to go back and second guess who was there and what the intention was of this transaction.”